Why Are So Many of the World’s Best Companies Run by Indians?

BY RUPA SUBRAMANYA

AUGUST 18, 2015

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Why Are So Many of the World’s Best Companies Run by Indians?

In the popular imagination, India is perhaps best known for its exports of curry, yoga, and Bollywood films. But another product is becoming a winner, too: chief executives of major multinational companies, including several based in the United States. The most recent to join this growing group is Indian-born Sundar Pichai, just named chief executive of Google after its reorganization. He joins Satya Nadella, the Indian-born head of Microsoft, who got the top job there last year; and chief executives of Indian origin have or continue to run major firms such as Citibank, MasterCard, and PepsiCo.

According to a study in Harvard Business Review, as of mid-2013, India’s export share of Fortune Global 500 company CEOs — that is, CEOs who are heads of companies headquartered in a country not their own — is 30 percent. That places India in territory comparable to countries like Switzerland and the United Kingdom. Because of the visibility of these posts, the success of Indian-born chief executives in the cutthroat global arena is quite striking to their fellow Indians. To think that a country that until recently was considered synonymous with poverty and destitution is now producing world-beating chief executives at iconic global companies is a source of national pride.

Yet for the most part, individuals like Nadella and Pichai obtained their graduate training and management expertise at top universities and firms in the United States, not in India. In other words, the success of Indian-born CEOs in America is as much about what’s right with America — or at least what used to be right before immigration became more restricted after 9/11 — as what’s right with India.In other words, the success of Indian-born CEOs in America is as much about what’s right with America — or at least what used to be right before immigration became more restricted after 9/11 — as what’s right with India. In fact, it may be more about what’s gone wrong on the subcontinent.

One point of pride, at least for Indians, is that this is one area where they’re beating their archrival China. Indeed, after Nadella’s appointment to Microsoft in February 2014, there was more than a bit of soul-searching in China: According to data from mid-2013, three Indian-origin chief executives were leading Fortune Global 500 companies outside India, while China had zero. The three Indians were Lakshmi Mittal of the steel giant ArcelorMittal, Anshu Jain of Deutsche Bank, and Indra Nooyi of PepsiCo; Nadella and Pichai have now raised the total to five.

There are some simple reasons for why China fares poorly in this regard. College-educated Indians tend to speak good English and are comfortable with American business culture; that isn’t the case for many of their Chinese counterparts. And in the case of tech companies such as Microsoft and Google, there’s a natural affinity with the rich tech culture back in India that nurtured business leaders like Nadella and Pichai.

But part of the reason why you’ll see far fewer Chinese than Indians, not only as chief executives but also in the upper management tiers of large Western multinationals, is far from a positive for India. Rather, it speaks to the relative strength of the Chinese economy and areas where India continues to lag behind.

For example, large Chinese firms pay salaries to upper management that are roughly the same as or only somewhat less generous than those for similar positions in the United States, whereas Indian salaries, converted at the actual exchange rate rather than at the purchasing power of the Indian rupee, still lag behind. According to a 2014 survey by consulting firm Towers Watson, pay for top executives in China was on average more than double that in India when converted into dollars.

Also, perhaps surprisingly, despite concerns about pollution in China (though India’s is comparable, if not worse), China wins hands down as a favored destination for expats. In a 2013 survey by HSBC, China ranked No. 1 overall out of a total of 37 countries as a preferred expat destination.

In fact, firms in India seem to have little desire to tap the global labor market for top managers. Large Indian firms remain heavily dominated by local chief executives, often family members of the firm’s original management. Indian business even at the highest level — and among companies that are heavily globalized — remains largely autarkic and inward-looking. And there is good reason for this, though it does not necessarily speak well of the Indian economy.

A few years back, when Ratan Tata, head of the Tata conglomerate, stepped down after a protracted search for a replacement, his successor ended up being not a foreigner, as some had speculated, but Cyrus Mistry, a consummate insider and member of the extended Tata clan. If even the most cosmopolitan of Indian multinationals thought it wise to stick with a member of the family, rather than pick a star chief executive from abroad, then specific local knowledge and networks — including connections to powerful bureaucrats and government ministers — must remain hugely important at the top levels of Indian management. In this respect, India is much more similar to Japan or China than to the United States or United Kingdom.

So before Indians pat themselves on the back for exporting star chief executives, they might want to consider how this reflects the country’s failures. How can India produce a business environment that nurtures and provides incentives and opportunities to high-performing individuals like Nadella or Pichai, leveling the playing field with Western multinationals? And second, how can India foster a more competitive and innovative environment, one that produces new companies like Microsoft and Google?

While Indians bask in the reflected glory, the real winners are Indian-Americans. They’ll see role models they can emulate without worrying about a glass ceiling — a very American success story after all. And Indian Prime Minister Narendra Modi would do well to reflect on this as he prepares for a visit to Silicon Valley next month.